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Chapter 8: Q14RQ (page 465)

When using the allowance method, what account is debited when writing off uncollectible accounts? How does this differ from the direct write-off method?

Short Answer

Expert verified

Answer

Journal entries:

Method

Accounts and Explanation

Debit $

Credit $

Allowance method

Allowance for doubtful accounts

xx



Accounts receivables


xx





Direct write-off method

Bad debt expenses

xx



Accounts receivables


xx

Step by step solution

01

Definition of Accounts Receivables

The accounts receivables refer to the sales amount for which payment is still due from the customer. It is considered a current asset of the business as the entity expects to receive it within one year.

02

Journal entry using allowance method and direct write-off method

Allowance method: Under the allowance method, the business entity debits the allowance for bad debts. It is done to adjust the allowance made by the business entity.

Direct write-off method: The business entity debits the bad debt expenses under this method.

The allowance method is different from the direct write-off method because it does not affect the income statement of the business entity.

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Most popular questions from this chapter

Question: A table of notes receivable for 2018 follows:

Principal

Interest

Interest Period During 2018

Note 1

\( 30,000

6%

6 months

Note 2

\) 12,000

10%

270 days

Note 3

\( 14,000

14%

75 days

Note 4

\) 100,000

7%

10 months

For each of the notes receivable, compute the amount of interest revenue earned during 2018. Round to the nearest dollar

What occurs when a business pledges its receivables?

Accounting for uncollectible accounts using the allowance (percent of-sales) and direct write-off methods and reporting receivables on thebalance sheet

On August 31, 2018, Forget-Me-Not Floral Supply had a \(140,000 debit balance inAccounts Receivable and a \)5,600 credit balance in Allowance for Bad Debts. DuringSeptember, Forget-Me-Not made the following transactions:

• Sales on account, \(530,000. Ignore Cost of Goods Sold.

• Collections on account, \)573,000.

• Write-offs of uncollectible receivables, $6,000.

Requirements

1. Journalize all September entries using the allowance method. Bad debts expense wasestimated at 2% of credit sales. Show all September activity in Accounts Receivable,Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).

2. Using the same facts, assume that Forget-Me-Not used the direct write-off methodto account for uncollectible receivables. Journalize all September entries using thedirect write-off method. Post to Accounts Receivable and Bad Debts Expense, andshow their balances at September 30, 2018.

3. What amount of Bad Debts Expense would Forget-Me-Not report on its Septemberincome statement under each of the two methods? Which amount better

matches expense with revenue? Give your reason.

4. What amount of net accounts receivable would Forget-Me-Not report on its September

30, 2018, balance sheet under each of the two methods? Which amount ismore realistic? Give your reason

Johnson Company uses the allowance method to account for uncollectible receivables. On September 2, Johnson wrote off a

\(14,000 account receivable from customer J. Mraz. On December 12, Johnson unexpectedly received full payment from Mraz on

the previously written off account. Johnson records an adjusting entry for bad debts expense of \)800 on December 31.

9. Journalize Johnson’s write-off of the uncollectible receivable.

10. Journalize Johnson’s collection of the previously written off receivable.

11. Journalize Johnson’s adjustment for bad debts expense.

Question: On December 1, Kyle Corporation accepted a 60-day, 9%, $12,000 note receivable from J. Michael in exchange for his account receivable.

Requirements

1. Journalize the transaction on December 1.

2. Journalize the adjusting entry needed on December 31 to accrue interest revenue. Round to the nearest dollar.

3. Journalize the collection of the principal and interest at maturity. Specify the date. Round to the nearest dollar.
See all solutions

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